Lithium ETFs and energy prices - on the rise 

If you happen to own one of the 250 million vehicles on Europe’s roads, you may feel as if your transportation costs have been rising by the minute. Indeed, in many countries across Europe the price of gasoline has now reached, or is fast approaching, USD$2 per liter. Russia’s invasion of Ukraine has clearly played a crucial role in pushing gas prices to record levels, but the truth is gas prices were already skyrocketing before a single shot was fired on the Ukrainian-Russian border. Following the two-year Covid-19 pandemic, the wheels of the global economy are turning again and burning more oil in the process. Many businesses are returning to pre-Covid operations, and with easing mobility restrictions fewer people are working remotely and instead commuting to their offices, which means they’re consuming more gas. Millions of internal combustion and jet engines are being cranked up as the oil-hungry airlines and cruise industries are regaining their vigor. Oil demand is high and outpacing supply. 

Lithium: An integral part of the solution

While many Europeans eye the high prices at the gas pump with disdain, others are contemplating a switch to electric vehicles. In addition to the clear environmental benefits such as cleaner air, less congested roads, and reduced noise pollution, there are increasing financial incentives for switching to electric power such as reduced operating costs and higher resale value. Lithium acts as a key component of batteries used for powering electric vehicles and demand continues to outpace supply by a wide margin. The passing of the “Inflation Reduction Act” in the United States is set to further increase demand for electric transportation as the legislation extends to tax breaks for the purchase of new electric vehicles. The increase in adoption of electric vehicles is expected to push lithium demand higher still and, as a result, strain global supply. This combination of factors has helped drive price performance to the extent that electric car producer, Tesla, is considering building a lithium refinery in Texas. On a recent earnings call CEO, Elon Musk, was quoted as saying that ‘the lithium business is a license to print money.’  

Publicly traded lithium Investments

Responsible investors who want to have a role in lithium stewardship can purchase lithium stocks. They consist of shares of companies that engage in the mining or processing of lithium. 

Alternatively, investors who are bullish on the future value of lithium, can invest directly through the commodities market using derivatives instruments such as futures and options. However, given the highly volatile nature of the commodities market this approach should only be considered by experienced investors prepared to take on a high level of risk. 

Lithium ETFs available to investors

Exchange traded funds offer an alternative option to access the investment potential of lithium. Rather than navigating the complexities of picking individual securities, ETFs offer investors a convenient way to gain exposure to the metal in one of two ways, either (i) investing in several lithium-focused businesses or (ii) investing directly in lithium as a commodity. Both approaches however offer the unique liquidity and intra-day trading benefits of the ETF investment wrapper.

Trackinsight’s Thematic ETF Screener identifies 11 exchange traded funds under the ‘Battery Value Chain’ theme, part of the broader ‘Alternative Energy’ trend which captures the investment opportunity of the ‘Technology Innovation’, ‘Rising Urbanization’, and ‘Environmental Changes' megatrends. 

Together, the 11 offerings manage USD$7 billion[1] worth of assets, posting 5.5% of gains (on average) over the week between September 5th and September 9th. Out of these, 6 products are aligned to the Sustainable Development Goal number 9 – Industry, Innovation, and Infrastructure – while following an ‘ESG Thematic’ investing approach. 

Global X Lithium & Battery ETF (LIT)

Global X Lithium & Battery ETF (LIT) is the world’s largest ETF trading under the Battery Value Chain theme and tracking lithium. Assets under management have reached USD$4.6 billion since the fund launched on July 22nd, 2010. It is a passively managed ETF seeking to replicate the performance of the Solactive Global Lithium Index. LIT is suitable for investors looking for exposure to the whole lithium cycle starting from mining, refining, to battery production. The fund’s 39 holdings[2] are geographically diversified with 38.8% of the portfolio invested in China, 21.7% in the United States, and 11.4% in South Korea, with the remainder spread across 8 different countries. LIT costs 0.75% per annum and distributes generated income to shareholders.

Bottom line

In conclusion, it would appear that the steady growth in lithium is in part due to rising oil prices, but also due to a broader shift towards clean energy technologies and increased adoption of electric vehicles. So, while there is no doubt that the Ukraine-Russia war has had a significant impact on the price of oil and perhaps accelerated this shift, it is unlikely that the conflict alone is responsible for this trajectory and we can expect to see continued developments in lithium, and associated industries, over the next decade, supported by the introduction of favorable legislation across the globe.

[1] Fund assets and flow data is as of September 9th, 2022.

[2] Holdings data is as of August 31st, 2022.

Please note this article is for information purposes only and does not constitute investment advice.